Tax cuts are now certain: analysts
Liberal move sets campaign agenda Growth and rates may be pushed up
No matter who wins the looming election, significant tax cuts are on the way, just in time for Christmas. But higher interest rates may be ringing in the New Year.
Finance Minister Ralph Goodale set the tone for the campaign trail on Monday by announcing nearly $ 30 billion in tax relief over the next five years. Those proposals may never be implemented, but the genie is out of the bottle, putting immense pressure on the Conservative party to come up with its own plan to lower taxes.
“ We don’t know the split between corporate and personal taxes, or between low- and middleclass to high income,” said Clément Gignac, chief economist at National Bank Financial.
“ But no matter what, you will get tax cuts.” By backdating the first wave of personal tax cuts to Jan. 1, Goodale is giving the holiday shopping season a boost, predicted Andrew Pyle, senior financial markets economist at the Bank of Nova Scotia.
“ The chances of those tax cuts disappearing are probably slim. Most Canadians are going to treat them as putting more money in their pocket.” By some accounts, Goodale’s tax plans could add 0.1 to 0.2 percentage points to economic growth next year. The economy is already running at or very close to capacity — the unemployment rate is at a 30-year low — so the added stimulus will make the Bank of Canada nervous about keeping inflation under control, said Gignac.
While tax relief is welcome and perhaps overdue, the timing may cause the central bank to raise its overnight rate faster and possibly higher than would
The airport agency estimates it could pay Transport Canada as much as $ 151.5 million for ground rent in 2006, compared with $ 133 million in 2005. Part of the total includes around $7 million of a rent deferral granted to combat a travel drop from the 2003 outbreak of severe acute respiratory syndrome that’s now being repaid.
It’s the eighth year in a row that the GTAA raised its landing fees, now nearly triple what they were when Ottawa handed airport control over to the not- forprofit corporation in 1996.
It will cost $ 13,668 to land a 747- 400 and $ 9,515 to land an Airbus 340 at Pearson in 2006, by far the highest such fees in the world. Tokyo Narita had been the highest, but recently announced a 20 per cent rollback, dropping to around $ 7,300 next year. The highest landing fees paid in the U. S. are at New York La Guardia, where landing a 747- 400 costs the equivalent of $ 6,000 ( Canadian). The rising fees and Ottawa’s rent policy put Pearson at odds with an industry already in turmoil due to high fuel costs, the emergence of low- cost carriers and labour costs at large “ legacy” airlines. Some American air carriers are in bankruptcy protection and one recently exited bankruptcy protection. And while Toronto probably won’t lose the business it has, it won’t gain any either because airlines seeking to expand are also looking at cutting expenses.
“ Any further cost increase to Pearson at this time will add to the financial troubles of an industry vigorously struggling to control its cost and return to profitability,” said Castelveter.
Ottawa was again called on to reduce rent the GTAA pays to the federal government, which represents about one-third of Pearson’s operating costs.
“ I am very angry that the federal government would extract these kinds of rents from Toronto Pearson Airport, making us the most expensive airport in the world to fly out of,” said city councillor Gloria Lindsay Luby, chair of the city’s economic development committee. “ Toronto can’t be the federal government’s cash cow forever. We certainly don’t want to turn Pearson into another Mirabel.”
Today, the Canadian Chamber of Commerce will call on Ottawa to review its new rent policy when chamber president Nancy Hugues Anthony gives a speech to the Canadian Airports Council. Anthony says the new policy is “ flawed” and “ inequitable.” The Tourism Industry Association of Canada and the Greater Toronto Hotel Association condemned the federal government for failing to offer rent relief. “Making international headlines as the world’s most expensive airport is never good for tourism,” said tourism association president Randy Williams. “ The market for attracting international tourist traffic is extremely competitive. Visits to Canada have been falling. Instead of charging Pearson millions in rent each year, the government should instead be cutting rent to make Toronto a more attractive destination for cost- conscious travellers.”
Instead, Ottawa’s actions will scare off tourists who’ll be forced to cover the airlines’ extra costs, fears University of Toronto professor Ramy Elitzur of the Rotman School of Management. “ It will make flights even more expensive.” Rod Seiling, president of the hotel association, said it’s not fair for Ottawa to ask Pearson to pay about $ 150 million in rent annually, with Vancouver and Montreal paying $30 million and $23 million, respectively. “ The federal government is discriminating against Toronto.”
Transport Minister Jean Lapierre insists Pearson was the big winner in Ottawa’s new rent policies, and says the federal government is forgoing $ 5 billion worth of rent over 50 years from Pearson. But, critics say Toronto ends up paying much more than other Canadian airports. Pearson will pay twothirds of Ottawa’s rent, while carrying one- third of the country’s passengers. Toronto’s rent comes down slightly — by 6 per cent by 2012 — while rent from the next five biggest airports drops an average of 52 per cent.
“ It’s a joke,” said Lindsay Luby. “ Airplanes are going to be diverted to fly out of Buffalo and Detroit, and Hamilton and Montreal. We need a fair deal.”